What the Future Holds for Tobacco Taxes

David Williams

11/12/2012 12:01:00 AM - David Williams

This week, in Seoul, South Korea, government representatives from 176 United Nations (UN) member-states will meet to discuss proposals ostensibly aimed at curbing tobacco use worldwide. The reality is that what happens this week could affect tax rates in the United States (US) and abroad and establish a dangerous precedent by ceding taxation powers to an international organization without achieving the goal of smoking cessation.

The World Health Organization (WHO), a UN subsidiary, has long led the push for a global tobacco tax, funds from which would be earmarked for WHO funding. The proposal has major implications for the preservation of member-state sovereignty, the ability of the WHO to be held accountable, and the extent to which smoking is actually reduced.

By WHO’s own admission, there is not universal agreement on the effect of tax increases on smoking. According to the Framework Convention on Tobacco Control (FCTC), there are “substantial and sometimes conflicting” views amongst those 176 signatories about international proposals focused on using tax and price measures to reduce tobacco consumption.

However, what is clear is the WHO’s interest in pushing higher tobacco taxes within signatory states. Recently, the WHO was caught urging China, Cambodia and other Southeast Asian nations to increase their tobacco taxes, in line with FCTC benchmarks. These benchmarks include a 70 percent excise tax on cigarettes sold within FCTC signatory countries. Setting aside overt pursuit of a global tobacco tax that may occur this week, it is clear that the WHO has already been intruding on states’ sovereignty by lobbying for fiscal policies intended to be the exclusive purview of the signatories in question. The anticipated push for a global tobacco tax this week would involve further encroachments and downright trampling of sovereignty, should such a push be successful.

While the United States has not fully signed and ratified the FCTC, there should be concern for US leaders, as should the possibility of the WHO being given additional funding in a manner that threatens to make it less accountable than it is now.

At present, the WHO depends on the individual UN contributions of member-states to fund its activities. If a given activity is problematic, member-states can potentially adjust their contribution amount up or down.

However, if the WHO is able to establish its own independent funding source, with its budget being funded in part by earmarked global tobacco tax funds, the accountability to which the WHO is currently subject will be diminished. That could have disastrous effects in terms of global health policy, and further jeopardize the sovereignty of individual nations.

Finally, if a global tobacco tax is pursued or instituted this week, it could well have negative effects where signatory state finances and efforts to persuade the majority of smokers to quit, are threatened.

Evidence shows that when tobacco taxes surge, though some smokers do quit, many others simply switch to counterfeit or illicit cigarettes, which are sold on the black market and are therefore not subject to the tax.

A recent study by industrial group Concamin confirmed that this occurred following Mexico’s introduction of a cigarette tax increase that went into effect in 2011. According to that study, illegal, untaxed cigarettes now account for about 17 percent of cigarettes sold in Mexico – a number that risks sapping the state of resources it depends on to finance initiatives including with regard to public health, and which indicates that while revenue from cigarette sales has declined, actual smoking has not diminished commensurate with the decrease. Studies from individual US states where tobacco tax increases have been pursued as a budget and public health panacea have demonstrated similar effects.

That trend is a bad one, both for governments and for smokers, who would benefit from giving up the habit. Red flags about the proposal have already been raised, especially in countries like Pakistan, where a large amount of government spending on programs other than smoking cessation are being financed through taxes levied on legally purchased tobacco products.

Yet the WHO disregards this evidence in its single-minded pursuit of a more durable funding line that cannot be meddled with by UN member-states who wish to hold the organization accountable and preserve control over their fiscal and public health policies.

At this week’s meeting, FCTC signatories should reject proposals that would institute a global tobacco tax, whether by the front or the back door and demand that the WHO stop its pursuit of top-down fiscal policy-making.